Full Cost Accounting
In response to NASA requirements and guidance
from Federal law NASA began budgeting and recording cost using Full Cost in FY
2004. Therefore, beginning with FY 2004, every cost
estimate shall reflect full cost at a level consistent with the data
available. Full cost will impact much of
what we do but the ability to operate in a full cost environment is not meant
to be a substitute for sound management practices as defined in the Strategic
Management Handbook and the Program/Project Management Handbook (NPR 7120.5)
The concept of full cost ties all Agency direct and indirect costs (including civil service personnel costs) to major activities called cost objects. These cost objects are NASA’s programs and projects. In the past, civil service personnel costs and certain other costs of the institution were not tied to projects. However, now they are charged or allocated. Cost estimators and financial managers need to include these costs in project/program estimates and must also conduct adequate reviews of proposals to ensure that these costs are included. The NASA Full Cost Initiative Agency-wide Implementation Guide (http://ifmp.nasa.gov/codeb/library/fcimplementation.pdf) includes policy and practice guidance with the goal of providing consistent and complete cost information for more fully informed decision making. The NASA Full Cost web site (https://fullcost.hq.nasa.gov) provides the latest information on the Full Cost Initiative. Cost Analysts are encouraged to visit this site and download the Full Cost 101 course under the training icon. To get more specific information regarding “Full Cost in Practice” training at individual Centers, select the Center of interest on the training page to get training and/or point of contact information.
QUESTION:
What is the full cost of a project?
ANSWER: The full cost of a project is the sum of all direct
costs, service costs, and G&A costs associated with the project. Because service and G&A costs cannot be
immediately and
directly identified with a specific project, service activity costs and G&A
cost pools are used to accumulate costs of similar purpose.
QUESTION:
How are costs categorized when using a full cost approach?
ANSWER: Costs may be categorized in different ways. NASA's full cost approach separates costs
into three general categories:
1.
Direct Costs – Direct costs are costs that are obviously and
physically related
to a project at the time they are incurred
such as purchased goods and services, contracted support,
and direct civil service salaries/benefits/travel.
2.
Service Costs – Service pool costs are costs that cannot be
specifically and
immediately identified to a project, but can subsequently be traced or linked
to
a project and are assigned based on usage or consumption. Each pool carries
all supporting costs for that function including: civil service salaries/benefits;
contractor labor; travel; purchases; pool management; facility related costs.
3.
General and Administrative (G&A) Costs – G&A costs are costs that
cannot
be related or traced to a specific project, but benefit all activities. Such costs
are allocated to a project based on a reasonable, consistent basis.[1]
Overview of Budget Planning in Full Cost
During budget planning and execution, the three general categories of cost are further refined into the following elements of cost:
a.
Procurements - purchases of contractor hardware,
contractor labor, equipment, etc.
b.
Personnel - cost of civil service personnel labor and
benefits.
c.
Travel - cost of project travel.
d.
Service Pools - a broad range of infrastructure
capabilities that support multiple programs/projects at a Center. These costs
can be traced/linked to a given project based on usage/consumption.
e.
Center G&A[2] - captures Center costs that cannot be related or traced to a specific
project, but benefit all activities. The following standard types of
costs/functions are included in each center’s G&A account: G&A civil service
salaries/benefits/travel; center training and awards; grounds maintenance;
pavement/roads; fire protection; library; public affairs; non-program CofF;
transportation services; human resources department; financial management,
equal opportunity; educational outreach; medical services; procurement,
security, and legal.
f. Corporate G&A- Costs related to the business operations of NASA Headquarters as a Center and Agency level functions that are G&A in nature performed at a Center (for example, IFMP). This includes costs for: the NASA Administrator and immediate staff; the Mission Directorate level/management; Headquarters Operations management; and Functional management, including Safety and Mission Assurance (SMA).
These categories are depicted in the project planning example in Exhibit 6-16.
|
Cost Elements for Project
“A” |
|
|
Full Cost |
|
|
Procurements |
(Contracts, grants,
hardware, direct services) |
|
30M |
|
|
Personnel |
(Direct civil service FTE x
Rate) |
|
10M |
|
|
Travel |
(Travel requirements for
project personnel) |
|
0.5M |
|
|
Service Pools |
|
|
15M |
|
|
Fabrication Services |
(Labor hrs x Rate) |
8M |
|
|
|
Test
Services |
(Labor hrs x Rate) |
7M |
|
|
|
Center G&A |
Total Direct Labor x
G&A Rate) |
|
10M |
|
|
Corporate G&A* |
(Direct NOA* x Percentage) |
|
5M |
|
|
Total Full
Cost Budget Plan |
70.5M |
|||
Exhibit 6-16:
Project “A” Planning Example
Although Corporate G&A is assessed to projects at the Agency level, during the estimating process, it must be considered by Center project. For example, when estimating the cost of new initiatives and submitting proposals for NASA Research Announcements (NRA) or Announcements of Opportunity (AO), Corporate G&A must be included to account for the cost of the entire activity.
The Agency has established six standard service pools. The service pools with their recommended cost assessment basis are:
Facilities and Related Service[3] – Square footage - the square footage occupied
by a project/function as a percentage of the total available square footage at
the Center.
Information Technology Service –
Desktop seats and/or direct labor hours.
Science and Engineering Service –
Direct labor hours.
Fabrication Service – Direct labor
hours.
Test Service – Direct labor hours.
Wind Tunnel Service[4] – Operating shifts.
Every Center has established sub-pools under each of the standard pools listed above. Estimators should become aware of the sub-pools that have been created at their Centers, their content, how their Centers are planning to assess the pool costs to users, and the cost to be assessed. Center cost assessments in budget planning are conducted in a flow-down approach beginning with the assessment of leave and fringe benefits on the direct labor charges and continuing through the pools and G&A to arrive at a Center Project estimate as depicted in Exhibit 6-17.
Exhibit 6-17:
Cost Assessment Flow Down
Through the cost assessment process, facilities and related services and some, if not all, of information technology may be completely flowed down to other pools and G&A leaving no costs in the pools to be assessed directly to projects. The last level of cost allocation is the assessment of General and Administrative (G&A) cost across all major activities. This includes Center G&A that is distributed based on total direct workforce equivalents (i.e., civil servants and contractors). Finally, Corporate G&A is distributed based on direct new obligation authority excluding all Center G&A. Care must be taken to avoid applying Corporate G&A to Center G&A costs. Other than facilities and IT, NASA does not allow any other cross-pool charging. After the flow-down of leave and fringe benefits, facilities, and IT, each pool/sub-pool should have a total cost associated with their operations and a planned consumption base. From this, Centers will develop rates to be charged for each service pool/sub-pool activity based on usage.
Estimating in a Full Cost Environment
Given the complexity of the Agency’s Full Cost methodology, the level of full cost detail in the cost estimate depends on the nature of the cost estimate. After the cost estimate requirements have been documented and understood and after the ground rules and assumptions have been defined and agreed to, the cost estimator will know what level of detail will be available for making the estimate full cost. The driving factor is usually a factor of time and available data.
The cost estimator should attempt to estimate the functional labor that is relevant to the project being estimated whenever the level of requirements data available to a cost estimator is such that he or she can make that determination. The total NASA labor cost can then be estimated using the direct, service pool, and G&A rates for each type of labor. If functional labor cannot be estimated, estimators could use a tool such as the Excel spreadsheet developed by GRC that summarizes the full cost information from the NASA Budget Process 340 for FY04-FY08. If an analogous theme or project can be identified, this tool provides current full cost information including full time equivalents, contractor work year equivalents, and the average cost of labor. This tool was distributed with the October 2003 CASG meeting files and is available from each Center’s CASG representative.
The nature of the cost estimate may be that only a ROM is
called for. In such cases the NASA CASG
and
The following includes examples of full cost estimating given varying levels of information to complete the estimate.
Full Cost Estimating Example #1
A prime contract estimate of
$350M was performed by GRC.
The project will likely be in the Solar System Exploration Theme under Project
Prometheus. There is currently no
estimate of NASA FTE or support contractor WYE available to complete the full
cost estimate. GRC assumes it will be
managed in-house like their other Project Prometheus work. The estimate is in FY04 dollars. The estimator can then look
at the Excel tool under the GRC Project Prometheus work to find the Hamaker
Factor for each year. The average factor
can
be estimated at about 55%-60%. Using
this information, a full cost estimate of ~$560M (i.e., $350M +.6*$350M) can be
made.
The total civil servant FTE can be estimated at 350 * 2 = 700
Total FTE using the factor
of about 2 FTE per million dollars of procurements. The total contractor work years can be
estimated at 350 * .8 = 280 Total WYE using the contractor
support factor provided. This level of
estimate lacks the detail to be broken down into the elements of cost. When using the ‘Hamaker Factor’ from the
Excel tool, cost estimators should not use a single factor for the year of the
study. Due to yearly changes in the
distribution of budget amongst the elements of cost, an average of the yearly
factors is
more appropriate.
Full Cost Example #2
A prime contract estimate of
$350M was performed by GRC.
The project will likely be in the Solar System Exploration Theme under Project
Prometheus. There is currently an
estimate of 210 total NASA FTE and 80 support contractor WYE (direct project
support, not service pool) required for the project.
A functional labor breakdown is not available.
The estimate is in FY04 dollars.
Other procurements at GRC require $10M.
Using the Excel tool under the GRC Project Prometheus work, the average cost
for a civil servant FTE is $211K in FY04$ (i.e., $108K labor, $2K travel, $48K
service pool, and $53K G&A).
The average cost of G&A is applied to
all direct labor. The average Corporate G&A
cannot be determined at the Center
level. Looking at Project Prometheus at
the Agency level, a Corporate G&A of 5.5% has been assessed and is assumed
to
be the same for all projects under the program.
Calculating the full cost by element of cost could be accomplished as
follows:
|
Procurements |
|
|
|
|
$ |
370.4M |
|
Prime contract |
$ |
350M |
|
|
|
|
|
Other Procurements |
$ |
10M |
|
|
|
|
|
Support Contractor ($130K* 80) |
$ |
10.4M |
|
|
|
|
|
Personnel ($108K*210) |
|
|
|
|
$ |
22.7M |
|
Travel ($2K*210) |
|
|
$ |
0.4M |
|
|
|
Service Pools ($48K*210) |
|
|
$ |
10.1M |
|
|
|
Center C&A
(210 FTE + 80 WYE)* $53K |
|
|
|
|
$ |
15.4M |
|
Corporate G&A |
|
|
|
|
22.2M |
|
|
Total Full Cost Project |
$ |
441.2M |
||||
Example #3 - A
prime contract estimate of $350M was performed by GRC.
The project will likely be in the Solar System Exploration Theme under Project
Prometheus. The estimate is in FY04
dollars. Other procurements at GRC are
estimated at $10M. Project travel is
estimated at $400K. There is currently
an estimate of 210 NASA FTE and 80 support contractor WYE required for the
project and functionally broke down with the direct labor with fringe benefits,
service pool, and G&A rates available as follows:
|
|
FTE |
Direct |
WYE |
Direct K$/WYE |
Rate K$ |
Pool |
|
Direct Support Contracts |
|
|
60 |
$130 |
|
|
|
Science
& Engineering |
150 |
$130 |
0 |
N/A |
|
$45 |
|
Information
& Technology |
10 |
$120 |
0 |
N/A |
|
$40 |
|
Fabrication |
10 |
$100 |
0 |
N/A |
|
$30 |
|
Test |
40 |
$100 |
20 |
$90 |
|
$50 |
|
Center
G&A |
|
|
|
|
|
$53 |
|
Total |
210 |
|
80 |
|
|
|
GRC test contractors are assessed test service pool costs. The average Corporate G&A is assumed to be 5.5%. The full cost estimate is derived as follows:
|
Procurements |
$ |
369.6M |
||||
|
Prime contract |
$ |
350M |
|
|
||
|
Other procurements |
$ |
10M |
|
|
||
|
Support Contractor ($130K * 60) |
$ |
7.8M |
|
|
||
|
Test Contractor ($90K * 20) |
$ |
1.8M |
|
|
||
|
Personnel
($130*150+$120*10+$100*10+$100*40) |
|
|
$ |
25.7M |
||
|
Travel |
|
|
$ |
0.4M |
||
|
Service Pools
($45*150+10*$40+10*$30+(40+20)*$50) |
|
|
$ |
10.5M |
||
|
Center G&A (210FTE
+ 80WYE) * $53K |
|
|
$ |
15.4M |
||
|
Corporate G&A
($369.6M+ $25.7M + $0.4M +$10.5M) * 0.055 |
|
|
$ |
22.3M |
||
As shown in the above three examples, varying levels of data will be available to assist in estimating the full cost on new projects. If using the Excel full cost spreadsheet, it is recommended not to use data past three years from the current year due to poor quality of out-year planning information. The best approach to full cost estimating will always be to collect as much detailed labor information as possible to reduce estimating error associated with projecting the full cost of new projects based on current or old project data. In-house projects will be estimated similar to Example #3 except that there is no prime contract. All examples above are at the total project level. Estimators are advised to provide results at the level of detail necessary for management decision-making.
The requirement of Full Cost has an effect on the tools commonly used by the NASA cost estimating community. Whether the level of insight into the Full Cost requirements is very high, permitting the cost estimator to capture cost by pool, or very low, forcing the cost estimator to use only a wrap rate, most tools will be unaffected. For COTS tools such as PRICE and SEER, the cost estimator will use the tool the same way as before full cost, but then burden the estimate with a full cost value. The intention for GOTS tools, however, is to enable them for full cost. The intention is to have NAFCOM, AATe, MICM/SICM, and other NASA tools generate answers already in full cost based on the data input. Because of the different structures of these tools, the method of capturing the full cost burden will depend on the tool. If a GOTS tool is not modified, then the cost estimate will be performed as with the COTS and the cost estimator will complete the full cost estimate outside the model.
Financial system reports for Business Warehouse (BW) are being developed for projects to track their full cost by element of cost and FTE/WYE. These reports will also provide information for cost estimators down to the lowest WBS level in the system. Budget Formulation data in FY05 will provide the opportunity to compare plans versus actuals in a single report. Cost estimators can enhance the value of the data by coordinating with the projects and financial personnel to ensure the WBS in the financial system is consistent with the product-oriented project WBS. Due to the inherent limitations of the financial system, cost data collection remains a major concern within the cost estimating community.
In a full cost environment, project managers will need to actively manage more than just their R&D budgets. All elements of cost may be contributors to cost variances. Under full cost, there are two types of variances that may be observed. The first is the cost variance that is the difference between the planned cost and actual costs incurred. These may be caused by labor, service pool, and/or G&A rate variances. The second type of variance is the consumption variance. This is the difference between planned consumption of a resource and actual consumption. Project Managers and resource analysts will be responsible for understanding the variances in their cost elements.
Burdened Labor Rates are used along with hours to estimate the total cost of labor that will be expended on a project. The evaluation of rates, hours, and accompanying assorted skill mixes is especially important with labor-intensive projects vice hardware intensive programs because of the significant contribution to total program/project costs.
The largest impact in the labor area will be the inclusion of civil service labor charges in program/project estimates. As NASA operates in a full cost environment, particular attention must be paid to the inclusion of civil service labor in all cost estimates, which is just as important as including contractor labor costs. Cost estimators need to obtain from their CFO the full cost direct labor and fringe benefit planning rates to use in their estimates by function/service pool.
When labor rates are not available, labor rate analysis and estimating can take on many different forms. Historical rates can be used as a starting point to escalate to future rates. Additionally, Office of Personnel Management salary tables can be used to obtain current civil service rates as the basis of estimates http://www.opm.gov/oca/payrates/index.asp. Added to the basic civil service rates will be a Leave and Fringe Benefit (L&FB) rate. L&FB includes cost elements such as:
Contributions to Retirement Plans:
-
Civil
Service Retirement System (CSRS)
-
Federal
Employees Retirement System (FERS),
Health Insurance Tax (HIT),
Health & Life Insurance
Premiums,
Workman's Compensation,
Thrift Savings Plan (TSP) Matching
Contributions, and
Leave and Paid Holidays.
Extracted from the NASA Full Cost Implementation Guide, located at http://ifmp.nasa.gov/codeb/library/fcimplementation.pdf, the example box below demonstrates the
development of an L&FB rate for one fiscal year. It was assumed for this example that 40% of
the workforce are covered by CSRS and 60% by FERS and that the Government's
contributions to those plans is 9% and 19% (which includes Social Security
taxes), respectively.
Note: When using
a combined L&FB rate, analysts must make assumptions
on the available hours for an FTE since the leave cost for that FTE is already
accounted for in the L&FB rate.
Therefore the direct labor cost that the L&FB
rate is applied to is the cost of the available hours only. For example, GRC
estimators use an estimate of 1800 available hours per FTE after all leave and
holiday hours are taken out. Given this
assumption, the burdened direct labor
cost for a civil servant FTE with a salary of $50,000 per year and a Center
L&FB
rate of 45% can be calculated as follows:
Calculating / Allocating Leave and Fringe Benefits
|
Leave and Fringe Benefit Rate |
|||
|
|
$000 |
||
|
Retirement (including
HIT) |
|
||
|
CSRS 9% of salaries |
4,680 |
||
|
FERS
19% of salaries |
14,820 |
||
|
Health & Life Insurance |
5,500 |
||
|
Thrift Savings Plan |
2,500 |
||
|
Workman’s Compensation |
500 |
||
|
Leave & Paid Holidays |
19,500 |
||
|
|
|
||
|
Total Leave and Benefits |
47,500 |
||
|
Total Estimated Salaries Less Leave |
110,500 |
||
|
|
|
||
|
Rate |
43% |
||
|
|
|||
|
Allocation of L&FB to Cost Categories |
|||
|
|
Salaries |
L&FB Rate |
Allocate L&FB |
|
Direct Projects |
77,000 |
43% |
33,100 |
|
Service Activities |
19,250 |
43% |
8,275 |
|
G&A |
14,250 |
43% |
6,125 |
|
Total |
110,500 |
|
47,500 |